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Reduced Margins Prompt Changes

Gas stations are sold or go unbranded as fuel cost increases sap profits from the industry.

August 7, 2006, 08:00 pm

SAN FRANCISCO and FREDERICKSBURG, Va. -- The price of gasoline is as volatile as the product itself. With prices rising, falling and rising higher again, one chain seeing smaller margins found a way to adapt.

San Francisco-based Road Ranger has decided to follow Plaid Pantry and go unbranded.

Road Ranger's move to unbranded fuel was sparked by marketing decisions, "to build Road Ranger as a brand as opposed to being Road Ranger with CITGO gasoline," Rick Cagle, the vice president of operations for Road Ranger told the Rockford Register Star.

The change to unbranded goes against the current trends in gasoline, as branded fuels can be cheaper than unbranded by two to 10 cents, said Jeff Lenard, spokesman for NACS told the newspaper. This is the case with Rotten Robbie, a San Francisco, Calif.-based gas station that can no longer sell its unbranded fuels cheaper than its competitor's Shell or Chevron gasoline, reported the newspaper.

"We sit around and say, 'How much longer is this going to go on and how much longer can we stand it?'" Jerry Cummings, president of Rotten Robbie, told the newspaper.

But Road Ranger is looking past current fuel issues. The switch to unbranded fuel will cut costs over the long term, according to Cagle.

"I really think that's a marketing decision for the gas station," David Sykuta, director of the Illinois Petroleum Council, told the Rockford Register Star. "There are about 4,300 different gas stations in the state. And there's probably 4,300 different ideas on how to make a buck and keep those businesses going."

But there are other problems facing the unbranded fuel retailers. Supply and competition from other channels selling unbranded fuel can get in the way.

"If you're small and you are unbranded and you have no contract, your chances of surviving in this market environment are next to nothing," said Godwin M. Agbara, who led the Government Accountability Office's (GAO) report on the effects of mergers on the petroleum industry. "Supply will be hard to get."

According to the GAO, big box retailers are replacing unbranded stations in the cheap gas market. Refiners would prefer larger independent distributors and retailers because it results in fewer transactions and less credit risk.

But even branded stations are feeling gasoline's pinch. William Eubank was forced to sell his Fredericksburg, Va. BP station because it's hard to make a living just selling gas, he told the Free Lance-Star. He stayed in business because of his two-bay car repair and towing service, which has now relocated down the street.

The station is one of 4,700 in the state of Virginia, down from more than 6,000 stations a decade ago, according to Mike O'Connor, president of the Virginia Petroleum, Convenience and Grocery Association. Those that do not fold and become vacant are sold to competitors or others in the industry, he continued.

Stores such as Wawa, Sheetz and even in other channels such as Wal-Mart lure in customers with the low cost of gas and then make their profits on in-store merchandise. "It's the oldest trick in the book," O'Connor told the Free Lance-Star.